TREASURY INSPECTOR GENERAL FOR TAX …

TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Results of the 2020 Filing Season and Effects of COVID-19 on Tax Processing Operations

March 22, 2021 Report Number: 2021-46-023

TIGTACommunications@tigta. | tigta

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HIGHLIGHTS: Results of the 2020 Filing Season and Effects of COVID-19 on Tax Processing Operations

Final Audit Report issued on March 22, 2021

Report Number 2021-46-023

Why TIGTA Did This Audit

What TIGTA Found

This audit was initiated to provide selected information related to the IRS's 2020 Filing Season, including information related to the impact of the Coronavirus Disease 2019 (COVID-19). The overall objective of this review was to evaluate whether the IRS timely and accurately processed individual paper and electronically filed tax returns during the 2020 Filing Season.

Impact on Taxpayers

The filing season, defined as the period from January through mid-April, is critical for the IRS. It is during this time that most individuals file their income tax return and contact the IRS if they have questions about specific laws or filing procedures.

The 2020 Filing Season was unlike any other. The IRS had to take unprecedented and drastic actions to address COVID-19 and protect the health and safety of its employees and the taxpaying public. These actions included closing Taxpayer Assistance Centers, Tax Processing Centers, and offices nationwide. In addition, on March 20, 2020, the Department of the Treasury extended the Federal income tax filing due date from April 15, 2020, to July 15, 2020.

As of December 25, 2020, the IRS had more than 11.7 million paper-filed individual and business returns that still needed to be processed. The backlog of returns, correspondence, and other types of work resulting from the pandemic has and will continue to have a significant impact on the associated taxpayers. For example, the unprocessed individual returns, as well as the additional returns and correspondence in the Error Resolution, Rejects, Unpostables functions and the Accounts Management inventory, include taxpayers who have yet to receive their Tax Year 2019 tax refunds.

The IRS's ability to resolve these backlogs could be affected by the need to divert resources to issue additional Economic Impact Payments or an unforeseen closure of IRS Tax Processing Centers due to the pandemic. The ability of these taxpayers to contact the IRS to receive updated information about the status of their refunds is a further challenge as staffing issues continue to hinder the IRS's ability to provide adequate customer service.

Much of the work performed at the IRS's Tax Processing Centers is not conducive to a telework environment. This work includes the receiving, sorting, and distributing of mail and the processing of paper tax returns, which requires manually inputting information from the tax return into IRS systems, correcting errors, and corresponding with the taxpayer, if needed. As of November 14, 2020, the IRS had more than 2.9 million pieces of unopened mail and 4.7 million individual paper tax returns to process. In addition, the IRS had more than 600,000 returns in its Error Resolution inventory, nearly 3.7 million cases in its Accounts Management inventory, and more than 1.3 million returns in its fraud program inventories as of this same period.

When the IRS closed its offices nationwide, it stopped answering 81 of its 87 toll-free taxpayer assistance telephone lines and closed all 358 Taxpayer Assistance Centers. In addition, 10,792 of the 11,014 Volunteer Income Tax Assistance/Tax Counseling for the Elderly partner sites remained closed as of May 24, 2020. The IRS had reopened 80 of its toll-free telephone lines as of November 5, 2020, and 263 of its Taxpayer Assistance Centers as of November 16, 2020.

As of November 13, 2020, the IRS received approximately 167.9 million tax returns (with 90.8 percent electronically filed) and issued more than 125 million refunds totaling $315.9 billion.

What TIGTA Recommended

This report was prepared to provide information only. Therefore, no recommendations were made in this report.

U.S. DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

March 22, 2021

MEMORANDUM FOR: COMMISSIONER OF INTERNAL REVENUE

FROM:

Michael E. McKenney Deputy Inspector General for Audit

SUBJECT:

Final Audit Report ? Results of the 2020 Filing Season and Effects of COVID-19 on Tax Processing Operations (Audit # 202040513)

This report presents the results of our review to evaluate whether the Internal Revenue Service (IRS) timely and accurately processed individual paper and electronically filed tax returns during the 2020 Filing Season. This review was part of our Fiscal Year 2020 Annual Audit Plan and addresses the major management and performance challenge of Implementing Tax Law Changes.

This report was prepared to provide information only. Therefore, we made no recommendations in the report. However, we provided IRS management officials with an advance copy of this report for review and comment prior to issuance. Management's complete response to the draft report is included as Appendix II.

Copies of this report are also being sent to the IRS managers affected by the report information. If you have any questions, please contact me or Russell P. Martin, Assistant Inspector General for Audit (Returns Processing and Account Services).

Results of the 2020 Filing Season and Effects of COVID-19 on Tax Processing Operations

Table of Contents

Background .....................................................................................................................................Page 1 Results of Review .......................................................................................................................Page 5

Processing Tax Returns ......................................................................................................Page 9 Detecting and Preventing Tax Refund Fraud.............................................................Page 13 Providing Customer Service .............................................................................................Page 17

Appendices

Appendix I ? Detailed Objective, Scope, and Methodology................................Page 25 Appendix II ? Management's Response to the Draft Report...............................Page 27 Appendix III ? Glossary of Terms....................................................................................Page 30 Appendix IV ? Abbreviations ...........................................................................................Page.32

Results of the 2020 Filing Season and Effects of COVID-19 on Tax Processing Operations

Background

Due to Coronavirus Disease 2019 (COVID-19), the 2020 Filing Season1 is unlike any other. The Internal Revenue Service (IRS) took unprecedented and drastic actions to protect the health and safety of its employees and the taxpaying public. For example, the IRS closed its Taxpayer Assistance Centers (TAC), Tax Processing Centers, and other offices nationwide. To ensure an orderly shutdown of its Tax Processing Centers, the IRS followed existing guidelines that are used when operations are ceased due to a lapse in funding. The major difference with the COVID-19 shutdown was that it had less time to prepare due to the urgency of the health crisis.

Employees were directed to evacuate their work sites, and those who were approved to telework started working from home (or an alternate location). Employees who were not yet approved but were able to telework had to complete training, sign agreements, and obtain the necessary equipment to enable teleworking. The remaining employees were put on weather and safety leave. Figure 1 details the specific date each of the Tax Processing Centers were closed as well as the date the centers began to resume full operations.

Figure 1: Tax Processing Center Closures Due to COVID-19 and Reopening Dates in Calendar Year 2020

Location

Date Closed

Date Reopened

Fresno, California Austin, Texas Kansas City, Missouri Ogden, Utah

March 20 March 25 March 25 April 6

June 29 June 1 June 15 June 1

Source: IRS management reports and notification for each location's closure and reopening dates.

The Department of the Treasury extended the Federal income tax filing due date for individuals from April 15, 2020, to July 15, 2020. On March 20, 2020, this tax relief postponed various tax filing and payment deadlines due on April 15, 2020. As a result, affected individuals and businesses had until July 15, 2020, to file returns and pay any taxes that were originally due during this period. This included 2019 individual and business returns due on April 15.2 Taxpayers were also permitted to defer Federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest.

Legislation was enacted to help businesses and individuals respond to COVID-19. Legislation was enacted with numerous tax-related provisions affecting individuals and businesses. This legislation appropriated more than $765 million in additional funding to the IRS to administer and oversee the provisions. The initial legislation included:

1 See Appendix III for a glossary of terms. The filing season is critical for the IRS as it is during this time that most individuals file their income tax return and contact the IRS if they have questions about specific laws or filing procedures. 2 Subsequent guidance further extended the relief to tax payments and filing obligations due on or after April 1, 2020.

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